Here you learn how to buy, sell or do nothing under the system. This is probably the most important chapter of the book. You must thoroughly understand and follow this chapter to get the benefits from the system. I'm going to go through it slowly and I want you not only to read and understand but practice it with some stocks of your own until it becomes second nature. And it will! At first it might seem complicated, but it's really incredibly simple. Here's how to do it.
First you will need to get some 13-column paper or use the sample sheet attached at the end of this chapter. Thirteen column is very common accountant/auditor paper designed to write numbers on. Any business supply store will have it. Ask your business friends. It comes in pads. If you have a computer then any spreadsheet software could be used to set up the system. There is an excellent software program for the system. Write to Bob Norman , Newport Programs, P.O. Box 27, Port Washington, WI 53074 for information.
Get your pencil, calculator, and 13 column paper. Let's start. Refer to the Claire's Stores sample spreadsheet at the back of the chapter while doing the calculations. To learn correctly, I want you to do the actual work.
Now a quick explanation of what every column means before we go through two years of one stock and see the system in action.
DATE - the date becomes the month and year (for example Jun. 95). You check your stock once a month under the system. Thus June 95 would be followed by July 95 and so forth. To save space in the spreadsheets I wrote the dates numerically such as 1/95, 2/95 etc.
Column 1 - SHARE PRICE - This is the closing price of one share as reported in the newspaper for the day you're checking. Use a daily newspaper such as Investor's Daily, Wall Street Journal. You will check the price of your stock at the beginning of the month - the first day in the new month that's convenient. Write the price as a decimal, not a fraction. The newspaper may write the price as 8 5/8. This is actually $8.625. All fractions are percents of a whole dollar. Thus 1/2 is $.50, 3/4 is $.75, and 5/16 is $.3125. Round all fractions off to whole cents. Thus, a stock at 6 5/16 should be written as $6.31 on your spreadsheet.
Column 2 - SHARE VALUE - This is the share price from column 1 multiplied by the number of shares owned which is found in column 6.
Column 3 - SAFE - SAFE is an arbitrary 10% of the Share Value found in column 2. Thus if your share value is $5,000 your SAFE amount would be $500. You'll see how SAFE helps you from buying and selling too soon when we go through the actual example stock.
Column 4 - CASH - When you start, put an amount of 1/3 cash and 2/3 stock. If you have $1,500 to invest, you buy $1,000 worth of stock and put $500 into the money market fund or equivalent cash fund. The cash will sit there waiting to buy more stock when the price drops, and ready to grow as you sell stock when the price rises. Your cash amount will grow every month as you add interest earned to your cash balance.
You'll see that the system is very conservative as most of your investment will become cash. Column 4 - column 9 if col. 9 is a buy X 1.005 (Interest) equals next month's cash total or col. 4 + col.9 if col. 9 is a sell X 1.005 (Interest) equals next month's cash total. To keep it simple in the example, I ignored commissions. In the rest of the book, commissions were used in most examples. You would always subtract any commissions from your cash total and then multiply the balance by 1.005 to figure next month's cash total.
Column 5 - SHARES BOUGHT (SOLD) - After you make your monthly check of the stock price, you will either buy some shares, sell some shares, or do nothing. In this column you will record the number of shares you bought or sold. If you did nothing, put a - in the column. To arrive at the number of shares you bought or sold, you divide the dollar amount in col. 9, MARKET ORDER BOUGHT (SOLD) by the share price in col. 1. For example if the system tells you to sell $200 worth of stock and the stock is selling for $10 a share, then you sell 20 shares. Remember to put ( ) around the sold stock to keep buy and sell transactions separate.
Column 6 - SHARES OWNED - Number of shares you currently own. This figure will constantly go up and down. If your stock splits, you would double the number of shares you own. Column 6 equals last month's col. 6 total plus any shares bought in the previous month or col. 6 equals last month's col.6 total minus any shares sold in the previous month.
Column 7 - PORTFOLIO CONTROL - Another important column. When you start, put a number equal to the amount of stock you buy - (column 7 is only a control number, no money involved with this column). If you start with $1,000 worth of stock, your portfolio control amount/number is also 1,000. After your initial injection of money, portfolio control will only change if you buy more stock. Every time you buy more stock, you add half the amount you bought to your portfolio control total. For example, the system tells you to buy $400 worth of stock, you add 200 to your portfolio control total. Col. 7 equals last months' col. 7 + 1/2 the amount of any market order buy. If no buy, then col. 7 is the same as the prior month.
Column 8 - BUY (SELL) ADVICE - Every month you look at share value (col. 2) and portfolio control (col. 7). If share value is higher, you put that figure on top; if portfolio control amount is higher, you put that amount on top. For example: If share value is $ 5,000 and portfolio control is $ 3,000 then you would put the higher value on top like this:
| Share Value | $5,000 |
| - Portfolio Control | $3,000 |
| = (Sell) Advice | $2,000 |
| or if Portfolio Control is higher: | |
| Portfolio Control | $5,000 |
| - Share Value | $3,000 |
| = Buy Advice | $2,000 |
Column 9 - MARKET ORDER BUY (SELL) - This is the column that tells you whether you make an order or not. You take the amount from col. 8, BUY (SELL) ADVICE , and subtract out the SAFE (col. 3) amount. If the amount is over $100, then you have a market order. This means we write or phone the stock broker and tell them to buy or sell the dollar amount of our market order. If you have a sell order, you have to figure out how many shares you must sell (col. 9 divided by col. 1 SHARE PRICE) and tell your broker to sell that many shares. For example, if your market order was to sell $200 worth of a $10 stock, then you would tell your broker to sell 20 shares. However if it's a buy order, tell your broker to buy $200 worth of stock and you may benefit as falling prices continue downward. You may get an additional share or two.
Column 10 - 6% INTEREST - This is the amount of interest earned by your cash total from col. 4. The .005 is 1/12 of 6% or the amount of interest you earned in one month. The amount is figured after you add cash if you sold stock or subtract cash if you bought stock in the previous month. I picked 6% because it's easy to work with and over a long period, is a fair average of the interest rate for money market funds.
Column 11 - PORTFOLIO VALUE - Add the value of your cash, col. 4 plus col. 2, the value of your stock and you have the total current value of your investment.
Now I will go through an actual stock and show you just how easy it is. Get your pencil, calculator, and 13 column paper. Write all the headings in the proper columns. Now write the name of the stock, for this example I picked Clair's Stores, see the chart at the end of this chapter. Then below the name list the stock exchange, NYSE = New York Stock Exchange. The first month is Jun. 94 (6/94), write that in your date column. Then we are going to imagine that we have $10,000 to invest. Having a calculator will make your figuring easier.
We start with $10,000. First we look up the price of the stock in the paper. When you actually buy your stock, you'll have to wait to get back your statement to see what actual price you paid. Our stock is selling for $10.25 (listed as 10 1/4). Put in col. 1. Our first share value will be 2/3 of our $10,000 or $6,700.(rounded off). Write 6,700 in col. 2.
Then in col. 3 write $670 because SAFE is always 10% of the share value in col. 2. Then write $3,300 in col. 4 because you always start with 2/3 of your money in stock and 1/3 in cash. Leave col. 5 blank this month (always leave blank for the first month). In col. 6 you write the number of shares you own. This is figured by dividing SHARE VALUE in col. 2 by the SHARE PRICE in col. 1- $10.25 = 654 shares. Always round off if 653.9, then 654, if 653.3, then 653 shares. Then in col. 7 PORTFOLIO CONTROL, put in the same number as you had in col. 2, SHARE VALUE, 6,700. Column 8 doesn't come into play yet, and col. 9 doesn't either. You haven't earned any interest yet, so col. 10 is blank also. Now add up the value of the stock you bought in col. 2 and the amount of cash in col. 4 and you have your COL. 11 PORTFOLIO VALUE. Add $6,700 + $3,300 = $10,000. Now let me show you how simple and profitable the system will be for you. Remember to reinvest all dividends into your money market (cash) account - just tell your broker when you open your account.
Now how to use the system in the real world. On July 1st or thereabouts, you pick up your newspaper. You look under the New York Stock Exchange and find Claire's Stores. Stocks will not have their complete names in the paper. Barron's lists the stock symbol (what you see going across the TV screen on CNN and other stations). It is important to make sure you are using the correct listing in the paper. For Claire's Stores, the stock lists as ClaireStrs.
So we find Claire's and see that the price on July 1st is 10.00 which we write in col. 1. Did you remember to put Jul. 94, 7/94 in the date column? Now go to col. 6 for Jun. 94. Look above in col. 6 and you see you owned 654 shares and you didn't buy or sell any in col. 5. This is why you leave col. 5 blank the first month.) You still own 654 shares. Write 654 in col. 6 for Jul. 94. Also your PORTFOLIO CONTROL amount is still the same (you didn't buy anything the first month, when you opened your account) so write 6,700 in col. 7. Now multiply the number of shares owned (654) by the share price (10.00) and you have your share value for col. 1. All fractions with eighths such as 1/8, 3/8, 5/8, and 7/8 will end in .xx5. Then col. 3 is easy, SAFE is always 10% - 10% of 6,540 = 654. Now cash, you'll notice, has grown from $3,300 to $3,317. This is because you earned $17 interest which youwrite in col. 10. If you had bought or sold stock the preceding month, this would have also affected cash this month.
Now you take your two key amounts - SHARE VALUE and PORTFOLIO CONTROL and look at them. Which is higher? PORTFOLIO CONTROL is higher (6,700) than SHARE VALUE (6,540). Since PORTFOLIO VALUE is higher, put PORTFOLIO CONTROL on top. You will be seeing this chart every month. Once you start doing this, you won't need the chart, but it's a good way to learn.
| PORTFOLIO CONTROL | $6,700 |
| - SHARE VALUE | $6,540 |
| = BUY ADVICE | $ 160 |
You now have a potential buy for $160 but it's only potential. Now look at the SAFE amount in col. 3 and you find that it is 654 which is higher than your buy advice in col. 8. So you put 0 in col. 9 MARKET ORDER (SELL) BUY because your buy signal isn't strong enough to give you a market order yet. Put a - in col. 5 since you won't be buying or selling any stock this month. Be patient, the system doesn't want you to sell or buy too soon. You'll get plenty of chances. Now all you have to do is figure col. 11, PORTFOLIO VALUE. You remember, add col. 2, value of your stock and col. 4, cash and you have the current value of your investment. This month it's $6,540 + $3,317 = $9,857. If the stock goes up in price, you'll have a potential sell and if it goes down, a potential buy.
Now for Aug. 94. I'll be shorter in my explanations and you'll still understand because you do the same thing every month. While every month is done the same, the outcome can be quite different.
First look up the price of Claire's stock. Claire's price is 12 3/8 or $12.37. Write in col. 1. Then multiply number of shares owned (still 654 since you didn't buy or sell last month) by the price of one share that gives you SHARE VALUE of $8,093. SAFE is always 10% so write $809 in col. 3. Again the only thing that affected CASH is INTEREST; you earned another $17. So write $17 in col. 10 and add $17 to your CASH. You now have $3,334 in CASH. Since you didn't buy any stock last month, PORTFOLIO CONTROL stays the same at 6,700. Again the magic two numbers, SHARE VALUE and PORTFOLIO CONTROL. Since SHARE VALUE is higher, put that on top. Since SHARE VALUE is higher, you have a potential (sell) signal. Now write the higher amount SHARE VALUE on top:
| SHARE VALUE | $8,093 | (col. 3) |
| - PORTFOLIO CONTROL | $6,700 | (col. 7) |
| = (SELL) ADVICE | $1,393 | (col. 8) |
| Now subtract SAFE from (SELL) | - $ 809 | (col. 3) |
| = MARKET ORDER | $ 584 | (col. 9) |
You should be writing all these figures on your spreadsheet the same as the illustration at the end of the chapter shows. At the end of this chapter is a blank sheet you can photocopy and use. As you can see, you are getting your first sell order. Now divide $584 by the share price ($12.375) and you have 47 shares to sell. Write (47) in SHARES BOUGHT (SOLD) column. Now finish your month's work by figuring out your PORTFOLIO VALUE. It's col. 2 ($8,093) + col. 4 ($3,334) = col. 11 $11,427. You're ahead $1,427 but better things are still ahead.
Now even quicker because I'm sure you understand how simple and repetitive the system is and soon you'll see its power. Try doing Sep. 94 on your own. Remember to start by looking up the price. Since this is an example, of course you can't but soon you'll be doing your own stocks and this will be the first step.
OK, the price has risen and is now 12.50, which means the newspaper listed it as what? , Right 12 1/2. Write down 12.50, then go to in cols. 6 & 7. Col. 7 PORTFOLIO CONTROL hasn't changed since no buying last month. But Col. 6 SHARES OWNED did change. We sold 47 shares last month. So subtract 47 from col. 6 total from prior month (654 - 47 = 607) Write 607 in col. 6 SHARES OWNED. Now figure col. 4 CASH. You started with 3,334 and must add the 584 you got from selling the stock. So 3,334 + 584 = 3918 + 20 for interest = 3,938, write in col. 4 CASH. Write 20 in col. 10, INTEREST. Then figure columns 2 & 3. Then compare Col. 2 with Col. 7 and see which is higher. SHARE VALUE is still higher 7,588 to PORTFOLIO CONTROL's 6,700. So in your head you can figure you have a potential (sell) of $888 that you write in col. 8 in ( ). You glance at SAFE and see it's lower than your potential (SELL) ADVICE (888 - 758 = 130) so you write 130 in col. 9, MARKET ORDER (SELL) BUY. You have a sell. Now divide $130 by 12.50 and you find you sold 10 shares. Write (10) in Col. 5 SHARES BOUGHT (SOLD). Add up the value of your portfolio in col. 11 - remember it's CASH + SHARE VALUE. Your portfolio is now $11,526.
Now Oct. 94. Stock price is $11.00 (stock prices do go down). Again write the SHARES OWNED and PORTFOLIO CONTROL in columns 6 & 7. Col. 7 PORTFOLIO CONTROL hasn't changed since no buying but col. 6 did change since we sold 10 shares. So take last month's Col. 6 total and subtract 10 (607 -10 = 597) and write in col. 6. Now figure SHARE VALUE and you see it's less than $6,700. It's $6,567 to be exact. SAFE is always 10% of SHARE VALUE so fill that in. Cash again was affected by selling. You started with 3938 and added 130 + 20 for interest = 4088.
Now look at PORTFOLIO CONTROL and now it is higher than SHARE VALUE so put PORTFOLIO CONTROL on top. Then subtract SHARE VALUE and write it in col. 8. Since PORTFOLIO CONTROL is on top, think P for purchase. You have BUY ADVICE of $133. Before you do anything you still must compare BUY ADVICE to SAFE. SAFE is still going to cancel any market order. Did you remember not to put ( ) around the numbers in cols. 8 & 9? I don't bother putting ( ) around 0 in col. 9. Again if you haven't given yourself $20 interest, add $20 to your CASH account and write 20 in col. 10. Again add SHARE VALUE and CASH to obtain your PORTFOLIO VALUE. You PORTFOLIO VALUE IS $10,655.
Now Nov. 94 and the stock has risen a little. Remember the beauty of the system: Buy low and sell high. Watch it work. OK, SHARE PRICE has risen to $11.37. Write in SHARE PRICE and number of SHARES OWNED and PORTFOLIO CONTROL which didn'tchange since no buying or selling last month. Now multiply number of shares 597 X SHARE PRICE 11.375 and your SHARE VALUE is $6,791. Again SAFE is 10% of SHARE VALUE or 679. CASH has earned another $20 of INTEREST: write that in col. 10 and add the $20 to CASH total in col. 4. Look at SHARE VALUE and PORTFOLIO CONTROL and as you thought, SHARE VALUE is higher which could possibly signal a sell. Write SHARE VALUE on top and PORTFOLIO CONTROL below:
| SHARE VALUE | $6,791 |
| - PORTFOLIO CONTROL | $6,700 |
| = (SELL) ADVICE | $ 91 |
Now compare your SELL ADVICE to SAFE and see that SAFE overrules any selling this month.
Write $0 in col. 9. Again finish off the month by figuring your PORTFOLIO VALUE: SHARE VALUE + CASH or $6,791 + $4,108 = $10,899 or your investment is up $899. Keep thinking long haul.
Now Dec. 94. Again look up the SHARE PRICE (it's $11.75). Write it in col. 1. Now go to col. 6, SHARES OWNED and PORTFOLIO CONTROL; since you did nothing last month, both will stay the same. Now business as usual.
Multiply the number of shares (597 X SHARE PRICE 11.75) and your SHARE VALUE is 7,015, write it in col. 2. Then SAFE is 10% or 701, write it in col. 3. CASH was only affected by interest so add 20 to month's total and write 20 in col. 10 INTEREST. Now compare PORTFOLIO CONTROL to SHARE VALUE. SHARE VALUE is $7,015 and bigger than PORTFOLIO CONTROL so you place it on top. Again remember S for SELL if SHARE VALUE is on top and P for purchase if PORTFOLIO VALUE is on top. Very simple. So do your calculations:
| SHARE VALUE | $7,015 |
| - PORTFOLIO CONTROL | $6,700 |
| = (SELL) ADVICE | $ 315 |
| - SAFE | $ 701 |
| = MARKET (SELL) ORDER | $ 0 |
You do nothing.
Now you figure PORTFOLIO VALUE. Remember how? See this is easy. You added SHARE VALUE of 7,015 + CASH of 4,128 = 11,143. You're ahead 1,143.
Now Jan 95. Again start with SHARE PRICE. It's 11.62. Now go to col. 6, SHARES OWNED and PORTFOLIO CONTROL. Again you did no buying or selling so they stay the same.
Now back to col. 2. SHARE VALUE is always # of shares X SHARE PRICE. Multiply col. 6, 597 shares X 11.625 SHARE PRICE. Your SHARE VALUE is $6,940. Again SAFE is 10% so write 694 in col. 3. Now CASH, again only interest affected cash so add 20 to cash total and write 20 in col. Write it in. Again compare PORTFOLIO CONTROL and SHARE VALUE:
| SHARE VALUE | $6,940 |
| - PORTFOLIO CONTROL | $6,700 |
| = (SELL) ADVICE | $ 240 |
| - SAFE | $ 694 |
| = MARKET ORDER | $ 0 |
You can safely ignore buy and sell orders under $100. Again figure out your PORTFOLIO VALUE - it's $11,088. Easy isn't it. Keep checking your spreadsheet against mine and make sure the numbers agree. Remember to round off your numbers; you don't need to worry about cents (except for col. 1, SHARE PRICE), just dollars.
Now Feb. 95 SHARE PRICE has risen and is now 14.125, write that in col. 1. Now go to cols. 6 & 7. Since you didn't buy or sell any stock last month, these amounts don't change. So write in 597 for number of SHARES OWNED and 6700 for PORTFOLIO CONTROL. Then figure out your SHARE VALUE (it's 597 X 14.125 = 8,433). Write it in col. 2. Again SAFE is 10% of col. 2, so write in 843 in col. 3. CASH is simple since you did no buying or selling; just add the INTEREST earned $20 to last month's total and write in your new total of $4,168. Again compare PORTFOLIO CONTROL to SHARE VALUE. By now your brain should be telling you that since the SHARE PRICE rose, you probably have a sell. Again as you always do, put the largest amount on top:
| SHARE VALUE | $7,384 |
| - PORTFOLIO CONTROL | $6,700 |
| = (SELL) ADVICE | $1,733 |
| - SAFE | $ 843 |
| = MARKET SELL ORDER | $ 890 |
Remember to write all the above amounts in their proper columns. Every column either has a number or a dash; never will a column be blank.
Now you have a MARKET ORDER SELL for $890. All you have to do is divide $890 by the SHARE PRICE 14.125 and you find out you sold 63 shares. Put (63) shares in col. 5 for Feb. 95. Again finish off your month by figuring your PORTFOLIO VALUE. It's SHARE VALUE of $8,433 + CASH of $4,168 = $12,601.
Now try to imagine this for real. It's one thing to play but quite another when it's for keeps, when it's your money. You got to work at being mentally tough when it comes to the hard, lean times of investing. For every peak you'll also find some valleys; always think for the long term. Study the history of this stock (Claire's) and you'll see those peaks and valleys. Look where you stand at the end and you'll have a grand view of those valleys from your peak.
Now Mar. 95. SHARE PRICE has dropped to $12.625 a share. OK, put that SHARE PRICE in col. 1 where it belongs. Now go to col. 6, SHARES OWNED. Look at col. 5, SHARES BOUGHT (SOLD) for last month and you remember you sold 63 shares. Subtract these 63 shares from the 597 you already had and write in your new total of 534 shares.
OK, back to col. 2. Your SHARE VALUE is $ 12.625 X your new number of shares (534) = $6,742. You should be thinking possible buy. Again put the larger amount on top:
| SHARE VALUE | $6,742 |
| - PORTFOLIO CONTROL | $6,700 |
| = (SELL) ADVICE | $ 42 |
| - SAFE | $ 674 |
| = MARKET ORDER | $ 0 |
Again remember to write all the amounts in their proper columns. Or type them all in your computer.
I forgot to figure cash so better late than never. Last month's CASH was $4,168. So take $4,168 and add 890 for the stock you sold last month, that leaves $5,058 X 1.005 for INTEREST earned = $5,083, put in col. 10. Now just figure PORTFOLIO VALUE which is SHARE VALUE 6,742 + CASH 5,083 = 11,825.
On to Apr. 95. SHARE PRICE is $13.125. Put in col. 1. Now go to col. 6 and figure how many shares you own. Always check col. 5 from the month before. If you see a dash meaning you neither bought nor sold any shares, then you know you still have the same number. Last month you know you did nothing, so you know your totals stayed the same (SHARES OWNED & PORTFOLIO CONTROL). The easy way to figure any month's total is to add columns 5 & 6 from the previous month if you bought and subtract column 5 from column 6 if you sold. So you now own 534 shares. So multiply 534 X their $ 13.125 SHARE PRICE and your SHARE VALUE is $7,009, write in col. 2. SAFE is 700. Last month's cash was $5,083. This $5,083 earned $25 interest (col. 10) so your ending CASH balance is $5,108, write in col. 4. Repeat as every month, look at PORTFOLIO CONTROL and SHARE VALUE.
SHARE VALUE is again higher:
| SHARE VALUE | $7,009 |
| - PORTFOLIO CONTROL | $6,700 |
| = (SELL) ADVICE | $ 309 |
| - SAFE | $ 700 |
| = (SELL) NOTHING | $ 0 |
Only thing left to do is figure your PORTFOLIO VALUE ($7,009 + $5,108 = $12,117).
On to May 95. SHARE PRICE is $ 13.875. Since you didn't buy or sell anything last month, SHARES OWNED and PORTFOLIO CONTROL remain the same. SHARE VALUE is $7,409 (534 X $ 13.875). SAFE is $740. CASH was only affected by INTEREST, so add the $26 INTEREST earned ($5,108 X 1.005 = $5,134). Again check PORTFOLIO CONTROL and SHARE VALUE and again PORTFOLIO CONTROL is lower so PORTFOLIO CONTROL goes on bottom:
| SHARE VALUE | $7,409 |
| - PORTFOLIO CONTROL | $6,700 |
| = (SELL) ADVICE | $ 709 |
| - SAFE | $ 740 |
| = MARKET ORDER | $ 0 |
All that's left is to figure PORTFOLIO VALUE (7,409 + 5134 = 12,543.
We are now going to do an important step to increase our profits - readjust the cash/stock ratio. When we started out, we used 2/3 stock and 1/3 cash. Checking after one year, we find the percentage of cash has increased. We want to take this excess cash and buy more stock with it. Our PORTFOLIO VALUE was 12,543. 1/3 of that is 4,139. Our current cash amount is 5,134 so: 5,134 - 4,139 = 995 of extra cash. We use that extra cash to buy the + 72 shares you see (that's why you see (709) in BUY (SELL) ADVICE and see BUY 995 in MARKET ORDER BUY. I wanted to show you what we'll do. We'll fix things up next month.
On to Jun. 95. The explanations are becoming shorter because you're getting smarter and seeing how easy this is. The SHARE PRICE rises to $ 15.875 a share. Write it down and then do columns 6 & 7. Col. 6 SHARES OWNED will increase by the 72 shares we bought last month with the excess cash (534 + 72 = 606). Col. 7 PORTFOLIO CONTROL increases by 100% of the MARKET ORDER BUY amount of 995. Whenever we first buy or add additional money to the system, we increase PORTFOLIO CONTROL by 100%. Thus col. 7 is 6700 + 995 = 7,695.
SHARE VALUE is 606 X $15.875 = $9,620. SAFE is 962. CASH was affected by readjusting our stock/cash ratio. We started with 5,134 - 995 excess cash + INTEREST of 21 = 4,160 PORTFOLIO CONTROL is again smaller so:
| SHARE VALUE | $9,620 |
| - PORTFOLIO CONTROL | $7,695 |
| = (SELL) ADVICE | $1,925 |
| - SAFE | $ 962 |
| = MARKET (SELL) ORDER | $ 963 |
You have SELL market order. Divide $963 by the SHARE PRICE of $15.875 and you find you SOLD (61) shares. Write in col. 5. Then end the month by figuring your PORTFOLIO VALUE. $9,620 + $4,160 = $13,780.
On to Jul. 95. SHARE PRICE continues up and is $ 18.125 a share, a good improvement. Now go to col. 6, SHARES OWNED: subtract the 61 shares you sold last month from the 606 shares you already own and you now own 545. Now since you sold stock last month, you know PORTFOLIO CONTROL does not change. Now multiply your new SHARES OWNED total of 545 X the SHARE PRICE of $ 18.125 and SHARE VALUE is $9,878. SAFE is 987. CASH went up last month. You had $4,160 and sold $963; so new cash total is $5,123 which earned $ 26 INTEREST, so your new CASH total is $5,149, write it down. PORTFOLIO CONTROL is again lower so:
| SHARE VALUE | $9,878 |
| - PORTFOLIO CONTROL | $7,695 |
| = (SELL) ADVICE | $2, 183 |
| - SAFE | $ 987 |
| = MARKET (SELL) ORDER | $1,196 |
You are continuously reducing your risk. You started with 654 shares and now own 479. Divide the 1,196 by 18.125 and you find you sold (66) shares, write in col. 5. Again the last thing to do is figure PORTFOLIO VALUE which is $9,878 + $5,149 = $15,027, you're ahead better than 50% in just over a year!
On to Aug. 95. SHARE PRICE is up to $19.50. Since you sold last month, PORTFOLIO CONTROL stayed the same and SHARES OWNED decreased (545- 66 = 479), so write them in. 479 X $ 19.50 = a SHARE VALUE of $9,341. SAFE is 934. CASH is 5,149 + 1196 +32 interest so your new total is $6,377. Again compare PORTFOLIO CONTROL and SHARE VALUE. SHARE VALUE is higher than PORTFOLIO CONTROL. If SHARE VALUE is higher than PORTFOLIO CONTROL, you have a possible sell signal. If SHARE VALUE is on top, think S for sell; if PORTFOLIO CONTROL is on top think P for purchase, it's so simple. Your calculations look like this:
| SHARE VALUE | $9,341 |
| - PORTFOLIO CONTROL | $7,695 |
| = (SELL) ADVICE | $1,646 |
| - SAFE | $ 934 |
| = MARKET (SELL) ORDER | $ 712 |
Divide 712 by selling price and you sold (37) shares, write in col. 5. Again figure your PORTFOLIO VALUE to end the month. It's $9,341 + $ 6,377 = $ 15,718.
On to Sep. 95. SHARE PRICE is $ 20.75. OK, go to SHARES OWNED and PORTFOLIO CONTROL and you know since you sold last month, PORTFOLIO CONTROL stays the same and SHARES OWNED decreases by the number of shares sold.. So copy in SHARES OWNED (479 - 37 =442)and PORTFOLIO CONTROL same as it was last month. Now multiply 442 X $ 20.75 and your SHARE VALUE is $ 9,172. Looks good doesn't it? SAFE is 917 and CASH is 6,377 + 712 + $35 INTEREST and is now $7,124. Again compare PORTFOLIO CONTROL and SHARE VALUE, it's a pleasure. You know what to do:
| SHARE VALUE | $9,172 |
| - PORTFOLIO CONTROL | $7,695 |
| = (SELL) ADVICE | $1,477 |
| - SAFE | $ 917 |
| = MARKET (SELL) ORDER | $ 560 |
Have you been remembering to put ( ) around SELL ADVICE and SELL MARKET ORDERS? It's important, go back to last month and check. Again, write the number of shares sold (560 divided by 20.75 = (27) in col. 5. Now for a pleasant chore, figuring PORTFOLIO VALUE. Add $9,172 + $7,124 = $ 16,230.
On to Oct 95. SHARE PRICE is $20.50. Go to col. 6. Since you sold 27 shares last month, subtract 27 from the 442 you previously owned and now you own 415 shares. Write it in. Important, no adjustment is made to PORTFOLIO CONTROL when you sell, it stays the same. Write it in. Now SHARE VALUE is 415 X $ 20.50 = $ 8,508. SAFE is 850. CASH continues to go up. Add the $ 560 from the stock you sold last month to last month's CASH ($ 7,124 + $ 560 = $ 7,684 + $ 39 INTEREST = $ 7,723). Write it in. Again compare SHARE VALUE and PORTFOLIO CONTROL and again SHARE VALUE is bigger. So make the calculations:
| SHARE VALUE | $8,508 |
| - PORTFOLIO CONTROL | $7,695 |
| = (SELL) ADVICE | $ 813 |
| - SAFE | $ 850 |
| = DO NOTHING | $ 0 |
All that's left is to figure PORTFOLIO VALUE which is $8,508 + $ 7,723 = $ 16,231.
On to Nov. 95. SHARE PRICE has dropped to $19.50 a share. Go to columns 6 & 7. SHARES OWNED and PORTFOLIO CONTROL stay the same since you didn't buy any stock last month. Write it in. Now multiply 415 X $ 19.50 = $ 8,093. SAFE is 809. Last month's CASH was $ 7,723 + $39 INTEREST = this month's CASH total of $ 7,761. Now the usual, compare SHARE VALUE and PORTFOLIO CONTROL.
The higher the stock goes, the more profits you can make. Later I'll tell you how to pick the best types of stocks, closed-end mutual funds, and other investments for your portfolio, depending on the level of risk you're willing to stand.
Now for those calculations. You see SHARE VALUE is higher than PORTFOLIO CONTROL as you thought. So....
| SHARE VALUE | $8,093 |
| - PORTFOLIO CONTROL | $7,695 |
| = (SELL) ADVICE | $ 398 |
| - SAFE | $ 809 |
| = DO NOTHING | $ 0 |
The system wants you to sell your high-priced stock, put the money into cash and sit back and wait for the price to drop. Then you use your cash to buy cheap stock, wait for it to go up and then sell it again; the extreme opposite of a vicious circle. Last thing you have to do for the month is figure PORTFOLIO VALUE that is $ 8,093 + $ 7,762 = $ 15,855.
On to Dec. 95. SHARE PRICE has dropped to $ 18.625. SHARE VALUE is 7,729. Go to cols. 6 & 7. PORTFOLIO CONTROL hasn't changed since you didn't buy any stock; write it in. SHARES OWNED hasn't changed. SAFE is 772. CASH has grown. Last month's CASH was $ 7,762 + $ 39 INTEREST earned = total of $ 7,801.
Again compare SHARE VALUE and PORTFOLIO CONTROL and SHARE VALUE is barely ahead. So do your calculations:
| SHARE VALUE | $7,729 |
| - PORTFOLIO CONTROL | $7,695 |
| = (SELL) ADVICE | $ 34 |
| - SAFE | $ 772 |
| = DO NOTHING | $ 0 |
All that's left to figure is PORTFOLIO VALUE which is $ 7,729 + $ 7,801 = $ 15,530.
On to Jan. 96, happy new year! SHARE PRICE is 17.625, continuing down. SHARE VALUE is 415 X 17.625 = 7,314. PORTFOLIO CONTROL & SHARES OWNED stay the same. CASH increases by $39 of INTEREST to 7,840. PORTFOLIO CONTROL is higher than SHARE VALUE. You could quickly see that the difference between PORTFOLIO CONTROL and SHARE VALUE is less than SAFE (381 vs. 731 so you will do nothing. PORTFOLIO VALUE is 7,314 + 7,840 = 15,154.
On to Feb. 96. SHARE PRICE is $19.00, a slight increase. Go to columns 6 & 7 and since you did nothing last month, they stay the same; write them in. Now figure SHARE VALUE that is 415 shares X $ 19.00 = $ 7,885. SAFE is $788. CASH earned $ 39 INTEREST and since no buying or selling last month, INTEREST was the only thing to affect CASH, thus CASH is $ 7,840 + $39 = $ 7,879; write it in. Now compare SHARE VALUE and PORTFOLIO CONTROL and SHARE VALUE is still higher. So.......
| SHARE VALUE | $7,885 |
| - PORTFOLIO CONTROL | $7,695 |
| = (SELL) ADVICE | $ 190 |
| - SAFE | $ 788 |
| = DO NOTHING | $ 0 |
Figure PORTFOLIO VALUE which is $ 7,885 + $ 7,879 = $ 15,764.
On to Mar. 96 SHARE PRICE has hit one year low, 16.125. Once you start reading and using Barron's, an excellent financial newspaper, you'll notice the codes they use to show the year's high and lows. Go to columns 6 & 7 and they stay the same since you didn't do anything last month. Write them in. Now SHARE VALUE equals 415 X $ 16.125 = $ 6,692. SAFE is 669. CASH was again only affected by INTEREST so add $ 39 to last month's amount and CASH is now $ 7,918. Compare SHARE VALUE and PORTFOLIO CONTROL and PORTFOLIO CONTROL is higher. So do your calculations:
| PORTFOLIO CONTROL | $7,695 |
| - SHARE VALUE | $6,692 |
| = BUY ADVICE | $1,003 |
| - SAFE | $ 669 |
| = MARKET ORDER BUY | $ 334 |
So you have a BUY MARKET ORDER for $ 334 worth of stock. Divide $ 334 by the SHARE PRICE $ 16.125 and you find you BOUGHT 21 shares. Write this in col. 5, DO NOT put the ( ) this is a buy. Remember to put a dash in col. 5 when you don't buy or sell. Last thing to figure is PORTFOLIO VALUE which is $ 6,692 + $ 7,918 = $ 14,610.
On to Apr 96. SHARE PRICE IS $ 18.125. Go to cols. 6 & 7. You bought 21 shares last month so your SHARES OWNED has increased from 415 to 436. PORTFOLIO CONTROL will increase since we did buy stock. Divide the 334 by 2 and add that amount to PORTFOLIO CONTROL - (334 DIVIDED BY 2 = 167 + 7695 = 7862). Write these two numbers in. SHARE VALUE is 436 X $ 18.125 = $ 7,903. SAFE is 790. CASH is $ 7,918 - 334 + $ 30 INTEREST = $7,622. Again compare PORTFOLIO CONTROL and SHARE VALUE and SHARE VALUE is slightly higher. Do your calculations:
| SHARE VALUE | $7,903 |
| - PORTFOLIO CONTROL | $7,862 |
| = (SELL) ADVICE | $ 41 |
| - SAFE | $790 |
| = DO NOTHING | $ 0 |
All that's left is to figure PORTFOLIO VALUE. It's $ 7,903 + $ 7,621 = $ 15,525 So on this example that is a real stock, you would be ahead 55% for two years. Buy low and sell high shouldn't only be a clich‚. It should and is put into practice through the system and produces the results that you want from an investment.
I didn't include an example of adding additional money to a stock. It is very easy. If you have for example, an additional $ 1,000, you tell your broker to buy $670 worth of stock and put $ 330 in your Ready Assets account. Then you increase PORTFOLIO CONTROL by the same amount ($ 670) you bought stock with. Make a separate line on your spreadsheet to show the increase. Change all columns that need changing. See chart for Claire's at the end of this chapter for an example. It's very easy to add money to an existing stock. You should do it to increase the size of your investment and decrease the cost of commissions and increase profits. As you'll read later, you should first try to build up to ten stocks before adding money to existing stocks to reduce risk. Also I recommend only adding money to an existing stock when the stock price is at or near its 52-week low price.
In several charts in this book, you'll see dashes across onemonth except for INTEREST. For these months you skipped the system - it's not a rigid system you must do every month. So for these months the only thing that happened was earning INTEREST on your CASH. You only needed to write in the INTEREST earned that month and then you added two month's INTEREST the next month when you got back to the system.
Another thing I wanted to tell you. For stock splits, I figured the split after any transactions. For example, if you owned 500 shares, sold 100 and then the stock split three for two, then your calculations were: 500 - 100 = 400 X 1.5 = 600 shares now owned. You only need to change the SHARES OWNED column.
I have included a blank spreadsheet you can copy and use at the end of this chapter.
One last item. At least once a year, readjust the stock/cash ratio to 1/3 cash, 2/3 stock like you start with. Remember I did it after one year with Claire's . It's easy. Look at Chapters 15 & 16. Once a year I adjusted the stock/cash ratio back to 1/3 cash and 2/3 stock. If the CASH balance was higher than 1/3 of PORTFOLIO VALUE, I took the excess CASH and bought more shares, and increased PORTFOLIO CONTROL BY 100% of the CASH amount I used to buy more shares. This is just like when I buy additional shares with new money or when I first buy a stock. Look at how I did it and you'll understand. Do this anytime you readjust the cash/stock ratio.
| DATE | REMARKS | SHARE | SHARE | SAFE | CASH | SHARES | SHARES | PORT | BUY | MARKET | 6% | PORT |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CLAIRE'S | PRICE | VALUE | BOUGHT | OWNED | CONTROL | (SELL) | ORDER | INTEREST | TOTAL | |||
| STORES | (SOLD) | ADVICE | (SELL) | |||||||||
| BUY | ||||||||||||
| 6/94 | 10.25 | 6700 | 670 | 3300 | - | 654 | 6700 | - | - | 10,000 | ||
| 7/94 | 10.00 | 6540 | 654 | 3317 | - | 654 | 6700 | 160 | 0 | 17 | 9.857 | |
| 8/94 | 12.37 | 8093 | 809 | 3334 | (47) | 654 | 6700 | (1393) | (584) | 17 | 11,427 | |
| 9/94 | 12.50 | 7588 | 758 | 3938 | (10) | 607 | 6700 | (888) | (130) | 20 | 11,526 | |
| 10/94 | 11.00 | 6567 | 656 | 4088 | - | 597 | 6700 | 133 | 0 | 20 | 10,655 | |
| 11/94 | 11.37 | 6791 | 679 | 4108 | - | 597 | 6700 | (91) | 0 | 20 | 10,889 | |
| 12/94 | 11.75 | 7015 | 701 | 4128 | - | 597 | 6700 | (315) | 0 | 20 | 11,143 | |
| 1/95 | 11.62 | 6940 | 694 | 4148 | - | 597 | 6700 | (240) | 0 | 20 | 11,088 | |
| 2/95 | 14.12 | 8433 | 843 | 4168 | (63) | 597 | 6700 | (1733) | (890) | 20 | 12,601 | |
| 3/95 | 12.62 | 6742 | 674 | 5083 | - | 534 | 6700 | (42) | 0 | 25 | 11,825 | |
| 4/95 | 13.12 | 7009 | 700 | 5108 | - | 534 | 6700 | (309) | 0 | 25 | 12,117 | |
| 5/95 | 13.87 | 7409 | 740 | 5134 | + 72 SHARES | 534 | 6700 | (709) | BUY 995 | 26 | 12,543 | |
| 6/95 | ADJUST S/C | 15.87 | 9620 | 962 | 4160 | (61) | 606 | 7695 | (1925) | (963) | 21 | 13,780 |
| 7/95 | 18.12 | 9878 | 987 | 5149 | (66) | 545 | 7695 | (2183) | (1196) | 26 | 15,027 | |
| 8/95 | 19.50 | 9341 | 934 | 6377 | (37) | 479 | 7695 | (1646) | (712) | 32 | 15,718 | |
| 9/95 | 20.75 | 9172 | 917 | 7124 | (27) | 442 | 7695 | (1477) | (560) | 35 | 16,296 | |
| 10/95 | 20.50 | 8508 | 850 | 7722 | - | 415 | 7695 | (813) | 0 | 39 | 16,231 | |
| 11/95 | 19.50 | 8093 | 809 | 7762 | - | 415 | 7695 | (398) | 0 | 39 | 15,855 | |
| 12/95 | 18.62 | 7729 | 772 | 7801 | - | 415 | 7695 | (34) | 0 | 39 | 15,530 | |
| 1/96 | 17.62 | 7314 | 731 | 7840 | - | 415 | 7695 | 381 | 0 | 39 | 15,154 | |
| 2/96 | 19.00 | 7885 | 788 | 7879 | - | 415 | 7695 | (190) | 0 | 39 | 15,764 | |
| 3/96 | 16.12 | 6692 | 669 | 7918 | 21 | 415 | 7695 | 1003 | 334 | 39 | 14,610 | |
| 4/96 | 18.12 | 7903 | 790 | 7622 | - | 436 | 7862 | (41) | 0 | 38 | 15,525 | |
| 4/96 | ADD'L $1000 | +330 | 37 | ADD 670 | 670 | |||||||
| 5/96 | - | - | - | - | - | - | - | - | - | - | 38 | - |
| DATE | REMARKS | SHARE | SHARE | SAFE | CASH | SHARES | SHARES | PORT | BUY | MARKET | 6% | PORT |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| PRICE | VALUE | BOUGHT | OWNED | CONTROL | (SELL) | ORDER | INTEREST | TOTAL | ||||
| (SOLD) | ADVICE | (SELL) BUY | ||||||||||